Retail Sales Rise Less Than Forecast as Americans Take Respite

June 12 (Bloomberg) -- Retail sales rose less than forecast in May as American consumers took a respite following a three- month surge in shopping that has underpinned economic growth.

The 0.3 percent increase in purchases last month followed a revised 0.5 percent gain in April that was much larger than previously estimated, Commerce Department figures showed today in Washington. The median forecast of 83 economists surveyed by Bloomberg called for a 0.6 percent advance.

Consumers are ramping up spending as a healing job market and rising home values boost balance sheets. Higher May sales from auto lots to Lowe’s Cos Inc. signal vitality in household spending, which makes up about 70 percent of the economy, though bigger wage gains may be needed to sustain the momentum.

“The more jobs there are, the more people with money in their pockets,” Ward McCarthy, chief financial economist at Jefferies LLC in New York, said before the report. “One of the key components of this cycle is that consumer spending has been moderate because income growth has been moderate.”

Estimates in the Bloomberg survey ranged from gains of 0.2 percent to 1 percent. The reading for April was previously reported as a 0.1 percent increase.

Six of 13 major retail categories showed gains last month, indicating the advance wasn’t broad-based, today’s Commerce Department report showed. The increase was paced by a pickup in demand at auto dealers and service stations. Excluding those two categories, sales were unchanged after a 0.3 percent increase in April that was previously estimated as a 0.1 percent drop.

Payroll Gains

Job market improvement is probably underpinning spending, giving more American households the means to shop. The economy added 217,000 positions in May after a 282,000 gain the prior month.

Another report today showed the number of American filing claims for jobless benefits rose to 317,000 last week, according to Labor Department figures. The total was lower than the 324,000 average so far this year, a sign that companies are retaining staff to meet the pickup in demand.

“The incoming U.S. indicators are consistent with the substantial rebound in growth for the current quarter,” Emily Kolinski Morris, senior U.S. economist at Dearborn, Michigan- based Ford Motor Co., said on a sales call on June 3. “Recent readings on housing have improved slightly and the labor market continued its gradual recovery.”

Industry figures on May 1 showed demand surged in May, with purchases of cars and light trucks reaching a 16.7 million annualized pace, the highest since February 2007.

Excluding Autos

Retail sales excluding autos rose 0.1 percent after a 0.4 percent increase in April, today’s report showed. They were projected to advance 0.4 percent, according to the Bloomberg survey median.

Core sales, the figures that are used to calculate gross domestic product and exclude such things as autos, gasoline stations and building materials, were unchanged last month after a revised 0.2 percent increase in April. The prior month had previously been reported as a 0.1 percent drop.

Hooker Furniture Corp. in Martinsville, Virginia, is among those taking a cautious stance even as demand improves. A slowing housing mark is clouding the company’s outlook.

“Orders for the quarter were up over the same period last year, but honestly not quite as robust as we would have hoped for,” Paul Toms, chief executive officer, said on a June 5 earnings call. “We’re concerned about the retail demand environment, and a little less bullish than earlier in the year due to a slower housing market, some inconsistency at retail, and an economy that’s not quite as robust as expected.”

Confidence Measures

Consumer confidence could help foster stronger consumption, though measures have been diverging. The University of Michigan sentiment index decreased to 81.9 in May from 84.1 in April. The Conference Board index last month, meanwhile, was at its second- strongest since 2008.

Balance sheet repair may be helping households. Property values in 20 U.S. cities increased 12.4 percent in March from the same month in 2013, according to an index from S&P/Case- Shiller on May 27. Stock prices have also climbed, helping those who own financial assets.

“Homeowners increasingly believe that improvements made to their homes will increase their value, and consumers’ views around personal finances continue to improve,” Robert Niblock, chief executive officer, said in a May 21 Lowe’s Cos Inc. earnings call. “Performance has already improved in May.”

Income Disparity

Even so, recent gains have benefitted upper-end consumers more than the middle- and lower- income brackets, bad news for lower-end retailers.

Worse-off customers have faced tepid earnings gains. Wages posted a 2.1 percent year-over-year increase in May, near the average for the last four years. Consumer prices climbed 2 percent in the 12 months ended in April, which means incomes only kept up with inflation.

Wal-Mart is “dealing with the structural changes that are happening in the marketplace, consumer in our segment,” William S. Simon, Wal-Mart U.S. chief executive officer, said in a June 6 call. “Our income segments remain challenged.”

The lack of wage growth is giving Fed policymakers pause as they scale back unprecedented asset purchases and look to eventually raise the main interest rate. “Low nominal wage inflation was also viewed as consistent with slack in labor markets,” according to minutes of the central bank’s last meeting in April.